‘Gainful employment’ rule drops defaults

Community college leaders like the U.S. Education Department’s final gainful employment rules, which focus on graduates’ debt-to-earnings ratio, but don’t consider default rates.

The new regulations “protect students from predatory programs that lead to high levels of indebtedness,” said J. Noah Brown, president of the Association of Community College Trustees in a statement. “The final regulations contain a critical modification sought by community colleges, and the result is a stronger and simpler framework.”

Because tuition is low, only nine percent of certificate students at public two-year institutions take out federal loans, said Brown. Community colleges feared losing aid eligibility because of high default rates for a small number of students.

However, some consumer groups said the new rules are too weak.

 

“The final gainful employment regulation does not do enough to stop the fleecing of students and taxpayers,” according to the Institute for College Access and Success (TICAS).

Dropping the default rate opens “a giant policy loophole,” writes Ben Miller on EdCentral. The debt-to-earnings measure holds career colleges accountable for their graduates’ success. The default rate included borrowers who dropped out. That’s a large group.

We know that dropouts, especially those with debt, are substantially more likely to default on their student loans, be unemployed and suffer other negative consequences. In fact, dropouts account for more than 60 percent of defaulters. Ignoring these issues could encourage colleges to be judicious about who they allow to graduate and could lead to tactics like giving retroactive scholarships to students who are about to graduate just so they can keep their debt balances down.

Career colleges will be “at liberty to defraud students with impunity, so long as they make sure they don’t graduate,” said education policy analyst Barmak Nassirian.

For-profit career colleges “will feel almost all of the sting from gainful employment,” predicts Inside Higher Ed.  Education Secretary Arne Duncan estimates that 1,400 academic programs with 840,000 students will fail to meet the standards, unless they improve. Ninety-nine percent of those programs are at for-profit colleges, he said.

The for-profit colleges’ trade association said the new regulations are based on an “arbitrary and capricious” metric. “The latest version of the gainful employment regulation has done nothing to fix this fundamentally flawed and misguided proposal,” said Steve Gunderson, president and CEO of the Association of Private Sector Colleges and Universities in a statement.

What to do about dropouts

Lauren Bizzaro owes $40,000 for three years of college. (Caleb Kenna for The Wall Street Journal)

College dropouts are the “untouchables” of higher education, writes Richard Vedder, director of the Center for College Affordability and Productivity, in Forbes.

Looking at those 25 to 34 years of age, the median earnings in 2013 were $27,339, about 10 percent higher than those who stopped their education with a high school diploma ($24,835), writes Vedder. And most dropouts who enrolled in four-year institutions took out student loans.

One approach is to spend more money — more financial aid for low-income students, better remedial education — to “alleviate some causes of dropping out.”

The alternative, writes Vedder, is for four-year colleges and universities to stop accepting students with weak academic records and little chance of success. That would include students in the bottom half of their high school class or with low SAT or ACT scores.

Those failing to meet the admissions thresholds should be allowed to attend community colleges or non-degree schools offering certificated vocational training and, if they succeed there, be allowed to proceed to four-year schools. This approach should not only reduce the dropout rate, it should save a good deal of money, both for students and taxpayers. It should reduce student loan repayment problems a bit, and lower loan delinquency rates.

Above all, a more restrictive admissions approach would in the long run reduce the mismatch between the availability of relatively high paying jobs and the numbers of college graduates seeking those jobs. We have too many college graduates, not too few.

Colleges would lose enrollments and revenue, Vedder writes. That would force “some needed creative destruction upon higher education.”

A Bit of College Can Be Worse than None at All, according to the Wall Street Journal.  For one thing, employers don’t like quitters.

Candidates with degrees or certificates have “shown perseverance and persistence to obtain that credential,” says Kevin Brinegar, president and chief executive of the Indiana Chamber of Commerce. Dropping out after a few courses makes managers wonder “‘Is that what they’re going to do when they come to work for me? They’ll work for three weeks or three days and say, ‘I’m out of here?’ ”

A majority of students at four-year institutions who didn’t complete college took out federal loans, with average borrowings of $9,300 to $10,400 depending on the type of school, according to the National Center for Education Statistics.

“More than three quarters of college freshmen who finished in the bottom 40 percent of their high school class will not graduate in eight years,” writes Bill McMorris in American Spectator.

Broward limits loans to cut defaults

Students at Broward College in Fort Lauderdale, Fla., attend a debt management workshop. Broward is one of 29 colleges that no longer accepts unsubsidized student loans. The effort is part of an experiment to cut down on student loan debt and defaults.
Broward students attend a debt management workshop. John O’Connor/WLRN

“Neither a borrower nor a lender be,” Polonius advised Hamlet. At Florida’s Broward College, financial aid officer Kent Dunston tells would-be borrowers not to borrow more than they need.  The two-hour money-management workshop is required. “You’ll be offered more,” says Dunston. “You don’t need it.”

Starting this year, Broward will not accept unsubsidized federal loans that require students to begin making interest payments immediately, reports NPR. Twenty-eight other community, four-year and online colleges around the country take subsidized loans only to prevent defaults. Broward has gone farther: The college no longer accepts private loans.

About 75 students were in (Dunston’s) class on a recent day, listening as he tells them the story of a young woman concerned about how her $137,000 student debt might affect her chances of getting married.

“That can throw a lot of cold water on a relationship, unless the guy can say, ‘Well, that’s OK baby, I owe $87,000 myself,’ ” Dunston says.

Broward student George Aleman thinks he owes about $60,000 in student loans. The middle-school dropout, who went on to complete his GED, came to Broward already owing that much in debt from a previous attempt at trade school.

The Broward College admissions and financial aid staff “couldn’t believe that I owed so much, and I only have an associate’s degree,” he says.

Aleman is eligible for one more year of loans. After that, he’ll have to pay Broward’s tuition of $2,400 a year and cover his living expenses.

Debbie Cochrane with The Institute for College Access and Success “fears that rejecting unsubsidized loans may force some students to turn to credit cards or other high-interest loans to pay for school and living expenses,” reports NPR.

Broward’s default rate has fallen to 12 percent, lower than the national rate of 13.7 percent.

Tennessee: Certificate holders out-earn 4-year grads

Tennessee workers with associate degrees and long- term certificates often start at higher wages than four-year graduates, according to a new College Measures study. It takes five years for graduates with bachelor’s degrees to catch up.

“You don’t need to go to a flagship university to get a good job. There are many successful paths into the labor market,” said Mark Schneider, author of the report. “Students have the right to know before they go and know before they owe.”

The EduTrendsTN website, a joint venture of the American Institutes for Research (AIR) and the Matrix Knowledge Group, has detailed data on labor market returns in Tennessee.

At the end of the first year in the workforce, long-term certificate holders earned more than $40,000, those with associate degrees, $37,000 and those with a bachelor’s, $34,262. After five years, the median wages of bachelor’s graduates were similar to two-year graduates’ earnings  ($41,888 versus $41,699), and slightly trailed certificate holders ($42,250).

“Many sub-baccalaureate credentials can be entryways to the middle class,” Schneider said.

Learning how to fix things or fix people pays off, writes Schneider on The Quick and the Ed. For associate degree graduates, electric engineering technicians earned the most ($61,000) after five years. Graduates in nursing and allied health fields also did well.

Graduates in business, liberal arts and management and information systems earned less than the state median. Human Development and Family Studies graduates earned much less.

After five years, associate degree graduates average $41,699, a few dollars more than Tennessee’s median household income.

“Five years after graduation, the 15 Tennesseans who got bachelor’s degrees in ethnic, cultural minority, or gender studies were making an average annual wage of $26,000, actually about $2,000 per year less than they were making one year after graduation,” notes Fawn Johnson on National Journal. 

In a recent survey, 99 percent of parents with children in college said that college is “an important investment in one’s future.” Yet, “only about half of students, graduates, and parents of college students had engaged in an ‘in-depth’ conversation about how student loans would be managed or paid for after graduation.”

Colleges get break on default penalties

Only 21 colleges with high default rates — 20 for-profits and one public adult education program — are set to lose access to student aid this year. Many more were at risk. At the last minute, the U.S. Department of Education decided to omit some defaulted loans when calculating default rates

The rate is based on the percentage of borrowers who defaulted three years after entering repayment. Tuesday, the department announced it wouldn’t count borrowers who defaulted on one loan but not on a second loan. In some cases, borrowers must repay different loan-servicing companies, which can cause confusion. The adjustment was made only for colleges that risked losing eligibility for student aid.

It’s a Get-Out-of-Jail-Free Card applied selectively with no transparency, writes Clare McCann on EdCentral. Cherry-picked colleges now have lower default rates than colleges that weren’t at risk of sanctions. “There’s no indication of which institutions benefited, in which sectors, or by exactly how much.”

 Federal regulations already provide opportunities for colleges to appeal their default rates based on a variety of factors, including poor-quality servicing. Why not simply run this process before finalizing the rates, rather than oddly offering up this upfront assistance?

High-default colleges get a break, but students don’t, adds McCann. Borrowers still are considered in default, even if it isn’t counted against their college.

Community colleges and historically black colleges and universities — both with low-income students and high default rates — had lobbied for relief, notes Inside Higher Ed. “On Tuesday, Education Secretary Arne Duncan said he was pleased that no historically black colleges and universities would face penalties for their default rates this year. Fourteen historically black institutions had default rates above the 30-percent threshold last year.”

Default rates fell slightly for community colleges, the Education Department announced. No community colleges face sanctions.

Critics said the last-minute adjustment undercuts accountability.

“If a school isn’t held accountable for a default, then the borrower shouldn’t be either,” said Debbie Cochrane, a researcher at the Institute for College Access and Success.

Representative George Miller of California, the top Democrat on the House education committee, was one lawmaker who pushed for the expanded three-year default rates. He questioned the department’s adjustment to the loan rates on Tuesday.

“Any changes in the student loan system that reduce transparency and consistency may compromise our ability to hold poor-performing colleges accountable,” Miller said in a statement. “The department should be doing everything it can to ensure student borrowers who have defaulted have every opportunity for redress.”

Community college advocates praised the adjustment. “We believe that the department has acted responsibly by not holding financially needy students hostage to the shortcomings of servicers and other parties involved in loan administration,” said David Baime, senior vice president for government relations and policy analysis at the American Association of Community Colleges.

Trained, jobless and in debt

Joe DeGrella of Louisville trained as a cardiology technician but works at AutoZone. Credit: Luke Sharrett for The New York Times

Millions of laid-off Americans have used federal aid to train for new jobs, reports the New York Times. Yet many end up jobless and in debt.

It’s not clear the $3.1 billion Workforce Investment Act (WIA), which was reauthorized last month, improves trainees’ odds of finding a job or their improving their earnings.  The feds don’t keep track.

When Joe DeGrella’s construction company failed, he met with a federally funded counselor, who “provided him with a list of job titles the Labor Department determined to be in high demand,” reports the Times. He chose a college certified to offer job training and received a federal retraining grant.

Two years studying to be a cardiology technician at Daymar College, a for-profit in Louisville, left him with $20,000 in debt and no job. Now 57, he moved into his sister’s basement and works at an AutoZone.

About 21 million jobless people entered retraining at community colleges, vocational and business schools, and four-year universities in 2012.

“The jobs they are being trained for really aren’t better paying,” said Carolyn Heinrich, director of the Center for Health and Social Policy at the University of Texas.

Laid-off workers spend less to take classes at community colleges. However, completion rates low. Defaults are a growing problem.

At Florida Keys Community College, the default rate is 19.4 percent, reports the Times.

The college charges nearly $11,000 for a two-year degree to get a job as a nursing assistant. Median — not starting pay — for a nursing assistant in Florida is less than $26,000 a year.

The updated WIA requires states to “track former students to determine if training helped them find work with sustainable wages,” reports the Times.

. . . In some states, data and academic studies have suggested that a vast majority of the unemployed may have found work without the help of the Workforce Investment Act.

In South Carolina, for example, 75 percent of dislocated workers found jobs without training, compared with 77 percent who found jobs after entering the program, according to state figures.

The Times confuses the student loan program with workforce development,writes Mary Alice McCarthy on EdCentral. Job trainees get grants though many also borrow to pay for college programs.

WIA spends $3 billion a year, the Higher Education Act provide over $150 billion a year in federal grants, loans, and tax credits. “A large share of that money goes to support students earning associate’s degree and occupational certificates,” writes McCarthy.

The government is “a terrible prophet for labor needs down the road,” writes Ed Morrissey on Hot Air.  The WIA should subsidize “employer-based training for jobs that need filling now or in the near future,” ensuring that people are trained for “real jobs.” Even then, taxpayers will end up paying for training that would have occurred anyhow.

Morrissey recalls the classic Tennessee Ernie Ford song:

You pass 16 classes and what do you get?
Another day older and deeper in debt.
Saint Peter don’t you call me, it wouldn’t be cool.
I owe my soul to the vocational school.

Bad credit? Proposal eases PLUS loan rules

People who’ve fallen up to $2,085 behind on their debts will be able to take out federal PLUS loans under a proposed regulation relaxing credit requirements reports Inside Higher Ed. In addition, the Education Department will analyze only two years of a prospective borrower’s credit history, down from five years.

In 2011, the Education Department tightened standards for the PLUS loan program, triggering tens of thousands of loan denials due to bad credit.  Leaders at historically black colleges and universities and their allies lobbied hard for looser credit rules, arguing that minority families were affected the most.

Low-income parents can take out Parent PLUS loans without showing their ability to repay the debt. Income-based repayment is not an option.

“The loans are both remarkably easy to get and nearly impossible to get out from under for families who’ve overreached,” reports the Chronicle of Higher Education and ProPublica in The Parent Loan Trap. There’s no check on the borrower’s income, employment status or other debt. There’s no loan cap.

Many of the colleges where students rely the most on Parent PLUS loans specialize in art and music.

Consumer advocates worry that low-income families are taking on debts they can’t repay.  “This loan is not a safe product for low-income borrowers,” said Rachel Fishman, a New America Foundation policy analyst.

Some middle-income parents are deferring retirement to repay their PLUS loans or going into default, the New York Times reported in 2012. Children can’t help out in many cases: Some have dropped out and others have taken low-paying jobs.

The default rate for Parent PLUS loans has tripled in recent years, according to national data. However, remains below the default rates for other federal student loans, reports Inside Higher Ed.

Higher ed a la carte


Should students loans be available for job training?
Accreditation is a higher ed cartel, argues Sen. Mike Lee, a Utah Republican, on The Federalist. He proposes letting states accredit alternative postsecondary programs, such as job training, apprenticeships, hybrid on-campus/on-the-job models and distance-learning options. People seeking skills — but not necessarily a degree — could assemble the education they need, a la carte, using federal aid to pay their costs.

Under the federal Higher Education Act, students are eligible for Title IV student loans and grants only if they attend formally accredited institutions. That makes some sense, for purposes of quality control. Except that under the law, only degree-issuing academic institutions are allowed to be accredited. And only the U.S. Department of Education gets to say who can be an accreditor.

By blocking new competitors, the system drives up costs, argues Lee. That prices most Americans “out of the post-secondary opportunities that make the most sense for them” and plunges “most of the rest deep into debt to pursue an increasingly nebulous credential.”

The Higher Education Reform and Opportunity Act would give states the power to create their own, alternative systems of accrediting Title IV-eligible higher education providers. . . . State-based accreditation would augment, not replace, the current regime. (College presidents can rest assured that if they like their regional accreditor, they can keep it.) But the state-based alternatives would not be limited to accrediting formal, degree-issuing “colleges.” They could additionally accredit specialized programs, apprenticeships, professional certification classes, competency tests, and even individual courses.

States could allow the Sierra Club to accredit an environmental science program, a labor union to accredit its apprenticeship program and Boeing to accredit an aerospace engineering “major,” Lee writes. Professors — or others with expertise — could go freelance, offering their teaching talents online.

In today’s customizable world, students should be able to put their transcripts together a la carte – on-campus and online, in classrooms and offices, with traditional semester courses and alternative scenarios like competency testing – and assistance should follow them at every stop along the way.

Employers already have shifted a lot of job training to community colleges. Now they could keep it in house — if their state agreed — with federal taxpayers footing the bill. Smashing the cartel could make today’s quality control problems even worse, responds Jordan Weissmann on Slate.

The entire point of requiring schools to be accredited before they can become eligible for federal aid is to make sure students don’t take out loans for a worthless education while burning taxpayer money in the bargain. As the rise of unscrupulous for-profit colleges demonstrates, the accreditors have basically abdicated that responsibility. Adding yet more accreditors into the mix, and making more programs eligible to profit off of loan dollars—without making it easier to kick schools out—would only worsen our problems with predatory colleges.

“Agencies might be more willing to punish a bad actor if they could downgrade its accreditation status rather than revoke it entirely—which is the only option available to them right now,” writes Weissmann. That’s one of the ideas proposed by New America policy analyst Ben Miller on EdCentral.

CC defaults soar, despite low debt

Community colleges are struggling to pay back their student loans, writes Andrew Kelly in Forbes.  While two-year public colleges charge low tuition, the default rate is high.

Only about 20 percent of community college students borrow, and 70 percent borrow less than $6,000. But low graduation rates put even small borrowers at risk of owing more than they can repay.

“Unfortunately, less debt does not equal fewer defaults,” writes Kelly. “And default’s consequences, like wage garnishment and severe credit damage, can hurt borrowers even more than a bloated loan balance.”

Policymakers should turn their attention from total debt to students’ ability to repay, Kelly argues. Income-based repayment plans “try to do exactly this, but they are far too generous to graduate students,” who often have high debts and high incomes.

The “front-end problem” is that “student loan programs encourage attendance at any program, at any college, and at any price.”

That means we subsidize a lot of failure. According to my analysis of the most recent federal data, about 37 percent of loan disbursements in the Stafford and Parent PLUS programs (loans for undergraduates) in 2012-2013 went to colleges with six-year graduation rates that were 40 percent or lower. That’s a lot of loans to people whose chances of finishing a degree are worse than flipping a coin.

What we need are policies that push students toward more effective and affordable options on the front end: better consumer information, income-share agreements, and risk-sharing that gives colleges skin in the game.

 The Student Loan Ranger has advice for community college students on how to avoid the debt trap. 

Corinthian crashes

Under investigation for falsifying job placement rates, for-profit Corinthian Colleges will sell 85 campuses and close 12 others. The national company runs Everest, WyoTech and Heald career colleges.

The Department of Education had put a hold on Corinthian’s access to federal student aid. Under an agreement reached last week, the DOE will provide $35 million in student aid funding to provide time to sell or close the colleges. Corinthian’s finances will be monitored closely by an independent auditor.

Corinthian receives $1.4 billion in Pell grants and federal student loans each year, which represents 85 percent of total revenuesreports the Miami Herald.

The company is facing charges in several states, including Florida and California, of exploiting and misleading low-income students.

Florida’s community colleges, which are some of the best in the nation, often offer similar programs at a far lower price. For example, Everest’s Pompano Beach location charges about $15,000 in tuition for a medical assisting diploma; at Broward College, the same program costs $1,698 for in-state students.

The Florida attorney general’s investigation of Everest has produced 100 pages of complaints, reports the Herald.

The California attorney general’s lawsuit cited internal Corinthian documents that described its students as “isolated” individuals with “low self-esteem” who have “few people in their lives who care about them.”

The California lawsuit states “the placement rates published by [Corinthian] are at times as high as 100 percent, leading prospective students to believe that if they graduate they will get a job. These placement rates are false and not supported by the data. In some cases there is no evidence that a single student in a program obtained a job during the time frame specified in the disclosures.”

In some instances, the suit says, Corinthian paid temp agencies to give its graduates short-lived jobs — so it could inflate the job placement numbers, and maintain the accreditation required to receive federal aid.

Corinthian’s enrollment has fallen to 72,000 students, estimates the DOE.

National Journal has more on the fall of Corinthian.